What you need to know about tax directives
Many South Africans are unaware of the tax relief programs offered by the South African Revenue Service (“SARS”). While recent legislative modifications and upgrades have focused attention on tax directives, the majority of taxpayers are unaware of what they are.
What exactly is a tax directive, and who is eligible?
A tax directive allows SARS to legally instruct employers, fund managers, or insurers on the tax rate to deduct for a taxpayer’s PAYE or withholding tax. The tax rate proposed by SARS will differ from the individual’s typical rate because SARS has assessed the individual’s circumstances and determined that they will be unjustly taxed on profits if the rate is not modified. This is especially true if they get bigger, erratic lump sum payments.
Employees that earn commission or work in sales
Commission-earners are frequently in a situation where their income might swing rapidly, particularly when they unexpectedly capture transactions with a high commission threshold. A real estate agent who specialises in elite property acquisitions or a vehicle sales professional who offers exclusive luxury automobile brands are two examples of commission earners.
It would be unjust to imply that while the estate agent worked valiantly to sell a multi-million Rand house to a business executive, the unexpected flood of commission should be taxed at their general income tax rate. Because the agent may only sell one or two residences per year, their total taxable income may place them in different tax rates at different periods.
If the salesperson is taxed at the standard income tax rate, it may be thought that he or she sells a house every month, which is not the case.
Following that, the agent’s employer might seek a tax directive to account for when a substantial sum is earned from a sale.
Expatriates and those planning to emigrate
Expatriates in the process of financially emigrating to another nation sometimes rely on big amounts of their pension fund to help for their move.
When this lump payment is withdrawn, the fund will deduct the required taxes depending on the individual’s current tax rate, which is not fair.
SARS can use a tax directive to inform fund managers at what tax rate the lump sum must be taxed before it is paid to the person.
Retirees and pensioners
Where pensioners are receiving a stipend, the retirement fund administrators will withhold PAYE contributions on their behalf.
If the individual receives new income, or their additional income ends, their circumstances change, and a directive may be sought to normalise their tax responsibilities without accruing debts.
Those who are experiencing unexpected financial difficulties
On exceptional occasions, if the taxpayer has experienced financial hardship due to circumstances beyond their control, such as national lockdowns; taxpayers can submit a hardship directive application asking SARS to review their rate of taxes in order to ease their financial suffering.
Depending on your specific circumstances, tax directives may become quite complicated.
When requesting tax relief from SARS in the form of a tax directive, it is best to consult a tax expert or visit TaxTim for help with the finer details or to reduce your tax exposure.
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